The corruption of money

Perhaps you had a rollicking New Year. I did not. A year ago, on
New Year's Eve, my wife and I were sitting with the
Governor-General and his vivacious wife watching the celebrations
from the front lawn of Admiralty House, sipping Veuve Clicquot
borrowed from the Prime Minister's festivity next door. At
midnight, we found ourselves standing behind Kevin Rudd as he put
his arm around his wife and we all looked up at the exploding
sky.

That was then. This New Year's Eve we had dinner at home. No
guests. No invitations. No champagne. No Vice-Regals.

It wasn't bread and water. We'd overdosed on Christmas. But it's
not bad as a personal metaphor. Even at Christmas lunch, the host,
Horrible Cousin (a family term of endearment) announced that she
and her husband would not be making their annual trip to Queensland
after Christmas. They both have secure jobs, no debt and no
sponging kids, but felt a sense of enveloping caution around them.
This is commonplace judging by the sales being repeatedly rolled
out by the airlines as they try to fill seats left empty by a
belt-tightening public following a year in which the sharemarket
fell by 43 per cent, the largest single-year drop in its 132-year
history and super funds went into sharp reverse. And the prospect
of thousands of retrenchments shadows this new year.

Even people with little interest in economics appear to have
grasped that we came close to an economic depression. The most
important economic policymaker in the world, the US Federal Reserve
chairman, Ben Bernanke, had to repeatedly make last-minute swerves
to avoid collisions with out-of-control financial vehicles. Perhaps
the most hair-raising was on March 14 last, when the decision to
bail out the investment bank Bear Stearns, whose default and
bankruptcy would have caused chaos in global credit markets, was
made by Bernanke at 4am, just hours before the market opened.

This would go on for months, with more and more interventions,
bigger and bigger guarantees, and is ongoing. Nor should we forget
that Bernanke, a non-partisan scholar, had made a life's study of
the causes of the Great Depression. The right man at the right
time.

Like John Maynard Keynes. Lord Keynes is the great justifier of
what is going on around the world as governments spend and
intervene at a time of economic crisis. The great man of economics
has made a roaring comeback as governments seek to fill a void left
by the failure of market fundamentalism. It is appropriate, then,
that the most brilliant biographer of Keynes, Robert Skidelsky, who
is not merely a professor of political economy but, like Keynes,
has been elevated to the House of Lords, has written about the
excesses that took the world into a global financial contagion:

"The crisis represents a moral failure: that of a system built
on debt. At the heart of the moral failure is the worship of growth
for its own sake, rather than as a way to achieve the 'good life'.
As a result, economic efficiency - the means to growth - has been
given absolute priority in our thinking and policy. The only moral
compass we now have is the thin and degraded notion of economic
welfare

"Any great failure should force us to rethink. The present
economic crisis is a great failure of the market system. It
originated in the US, the heart of the world's financial system and
the source of much of its financial innovation. That is why the
crisis is global, and is indeed a crisis of globalisation.

"There were three kinds of failure. The first was institutional:
banks mutated from utilities into casinos. However, they did so
because they, their regulators and the policymakers sitting on top
of the regulators all succumbed to something called the 'efficient
market hypothesis': the view that financial markets could not
consistently mis-price assets and therefore needed little
regulation. So the second failure was intellectual. Behind the
efficient market idea lay the intellectual failure of mainstream
economics. It could neither predict nor explain the meltdown
because nearly all economists believed that markets were
self-correcting. As a consequence, economics itself was
marginalised.

"Today we are living through a crisis of conservatism. The
financial crisis has brought to a head a growing dissatisfaction
with the corruption of money. Neo-conservatism has sought to
justify fabulous rewards to a financial plutocracy while median
incomes stagnate or even fall; in the name of efficiency it has
promoted the off-shoring of millions of jobs, the undermining of
national communities, and the rape of nature."

This is too elegant to cut and paraphrase. Anyone interested in
the full 4000-word article can find it online in this month's issue
of Prospect.

In Australia, the prerequisites for replacing excess with
moderation are in place. Interest rates have plunged. The cost of
oil has also plunged (for the time being). Households are saving
more and spending less. There is a glut of boats and holiday homes
on the market. The Rudd Government, having campaigned in last
year's election as fiscal conservatives, has embraced Keynesian
intervention with gusto.

This can only go so far. No government can ultimately rely on
the printing press to keep everything pushing along. But I'll leave
the last word to Lord Skidelsky: "The crisis has rightly led to a
revival of interest in Keynes. But he was a moralist as well as an
economist. He believed that material wellbeing is a necessary
condition of the good life, but that beyond a certain standard of
comfort, its pursuit can produce corruption, both for the
individual and for society."